Question 1

Operating income is often referred to as net operating profit before tax.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is incorrect? When using the 10-Q, the analyst should be aware that the usefulness of the quarterly financial statements might be affected by:

Accepted Answer

A) seasonality. 
B) adjustments made in the final quarter of the year. 
C) the use of cash accounting. 
D) the increased use of estimates. 
A) seasonality. 
B) adjustments made in the final quarter of the year. 
C) the use of cash accounting. 
D) the increased use of estimates.

Question 3

If a company fails to record a material amount of depreciation in a previous year, this is considered:

Accepted Answer

A) a change in accounting principle. 
B) an unusual item. 
C) an accounting error. 
D) a change in estimate. 
A) a change in accounting principle. 
B) an unusual item. 
C) an accounting error. 
D) a change in estimate.

Question 4

Which of the following is not a source of industry information?

Accepted Answer

A) Cash budget 
B) Standard and Poor's 
C) Trade journals 
D) Value line 
A) Cash budget 
B) Standard and Poor's 
C) Trade journals 
D) Value line

Question 5

Which of the following statements about cash flows is true?

Accepted Answer

A) All cash flows are value relevant. 
B) Only current cash flows are relevant for valuation. 
C) Cash flows are less reliable than accruals. 
D) Cash flows can be manipulated. 
A) All cash flows are value relevant. 
B) Only current cash flows are relevant for valuation. 
C) Cash flows are less reliable than accruals. 
D) Cash flows can be manipulated.

Question 6

Which of the following is a change in accounting principle?

I. A change from LIFO to FIFO
II. A change in estimated salvage value of depreciable asset
III. A change from an accelerated depreciation method to straight-line depreciation
IV. Recording depreciation for the first time on machinery purchased five years ago

Accepted Answer

A) I, II, III, and IV 
B) I, II, and III 
C) I, III, and IV 
D) I and III 
A) I, II, III, and IV 
B) I, II, and III 
C) I, III, and IV 
D) I and III

Question 7

The matching principle requires that:

Accepted Answer

A) revenues earned and expenses incurred in generating those revenues should be reported in the same income statement. 
B) non-operating gains and losses should be netted against each other. 
C) a proportion of each dollar collected will be assumed to be a recovery of cost. 
D) assets will be matched to the liabilities incurred to purchase them. 
A) revenues earned and expenses incurred in generating those revenues should be reported in the same income statement. 
B) non-operating gains and losses should be netted against each other. 
C) a proportion of each dollar collected will be assumed to be a recovery of cost. 
D) assets will be matched to the liabilities incurred to purchase them.

Question 8

Which of the following is a change in an accounting estimate?

I. A change from straight-line depreciation to declining balance method
II. A change in estimated salvage value of depreciable asset
III. A change in estimated useful life of an asset
IV. Recording depreciation for the first time on machinery purchased five years ago

Accepted Answer

A) I, II, III, and IV 
B) II, III, and IV 
C) I, III, and IV 
D) II and III 
A) I, II, III, and IV 
B) II, III, and IV 
C) I, III, and IV 
D) II and III

Question 9

Financial accounting data has some inherent limitations to investors. Which of the following is a limitation?

I. Not all economic events are easily quantifiable.
II. Many accounting entries rely heavily on estimates.
III. Historical costs do not accurately reflect the true value of firms.
IV. Inflation can distort analysis of accounting data.

Accepted Answer

A) I, II and III 
B) I, III, and IV 
C) II, III, and IV 
D) I, II, III, and IV 
A) I, II and III 
B) I, III, and IV 
C) II, III, and IV 
D) I, II, III, and IV

Question 10

Accounting standards are set by the American Institute of Certified Public Accountants (AICPA).

Accepted Answer

A) True 
 B)False

Question 11

Economic income measures change in:

Accepted Answer

A) asset value. 
B) liability value. 
C) shareholder value. 
D) net cash flows. 
A) asset value. 
B) liability value. 
C) shareholder value. 
D) net cash flows.

Question 12

Which of the following would affect the comparison of financial statements across two different firms?

I. Different accounting principles
II. Different sizes of the companies
III. Different reporting periods
IV. Different industries

Accepted Answer

A) I, III, and IV 
B) I and IV 
C) I and II 
D) I, II, III, and IV 
A) I, III, and IV 
B) I and IV 
C) I and II 
D) I, II, III, and IV

Operating income is often referred to as net operating profit before tax.

Which of the following is incorrect? When using the 10-Q, the analyst should be aware that the usefulness of the quarterly financial statements might be affected by:

If a company fails to record a material amount of depreciation in a previous year, this is considered:

Which of the following is not a source of industry information?

Which of the following statements about cash flows is true?

The matching principle requires that:

Accounting standards are set by the American Institute of Certified Public Accountants (AICPA).

Economic income measures change in:

Which of the following would affect the comparison of financial statements across two different firms? I. Different accounting principles II. Different sizes of the companies III. Different reporting periods IV. Different industries

Overview of Financial Statement Analysis

Analyzing Financing Activities

Analyzing Investing Activities

Analyzing Investing Activities: Intercorporate Investments

Analyzing Operating Activities

Cash Flow Analysis

Return on Invested Capital and Profitability Analysis

Prospective Analysis

Credit Analysis

Equity Analysis and Valuation

Filters

Exam 2: Financial Reporting and Analysis

Operating income is often referred to as net operating profit before tax.

Which of the following is incorrect? When using the 10-Q, the analyst should be aware that the usefulness of the quarterly financial statements might be affected by:

If a company fails to record a material amount of depreciation in a previous year, this is considered:

Which of the following is not a source of industry information?

Which of the following statements about cash flows is true?

The matching principle requires that:

Accounting standards are set by the American Institute of Certified Public Accountants (AICPA).

Economic income measures change in:

Which of the following would affect the comparison of financial statements across two different firms? I. Different accounting principles II. Different sizes of the companies III. Different reporting periods IV. Different industries

Overview of Financial Statement Analysis

Analyzing Financing Activities

Analyzing Investing Activities

Analyzing Investing Activities: Intercorporate Investments

Analyzing Operating Activities

Cash Flow Analysis

Return on Invested Capital and Profitability Analysis

Prospective Analysis

Credit Analysis

Equity Analysis and Valuation

Filters